The Rapid Change of International Business Introduction to IB The Rapid Change of International Business McGraw-Hill/Irwin International Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives Appreciate the dramatic internationalization of markets Understand the various names given to firms that have operations in more than one country Understand the five kinds of drivers, all based on change, that are leading international firms to globalize Comprehend why international business differs from domestic business Describe the three environments—domestic, foreign, and international--in which an international firm operates

International Business Terminology Foreign business Multidomestic company (MDC) Global company (GC) International company (IC)

International Business Terminology, cont’d. A business whose activities are carried out across national boarders Foreign Business The operations of a company outside its home or domestic market Multidomestic Company An organization with multicountry affiliates Each formulates its own business strategy on perceived market differences

International Business Terminology, cont’d. Global Company an organization that attempts to standardize and integrate operations worldwide in most of all functional areas International Company A global or multidomestic company

History of International Business Early traders Well before the time of Christ, Phoenician and Greek merchants China stimulated the emergence of an internationally integrated trading system “all roads lead to China” 17th Century mercantilism/colonialism British East India Company Dutch East India Company Portugal and France

Globalization Globalization (សាលកភាវូនីយកម្ម) Coined by Theodore Levitt “as if the entire world (or major regions of it) were a single entity; [such an organization] sells the same things in the same way everywhere” Economic Globalization(សេដ្ឋកិច្ចសាលកភាវូនីយកម្ម) International integration of goods, technology, information, labor, and capital Process of making this integration happen

Table 1.1 Globalization Rankings: The KOF Index of Globalization and the A.T Kearney/Foreign Policy Globalization Index

Globalization Forces Political forces (កត្តាជំរុញផ្នែកនយោបាយ) Reduction of barriers to trade and foreign investment by governments Privatization of former communist nations Technological forces​ (កត្តាជំរុញផ្នែកបច្ចេកវិទ្យា) Advances in computers and communications technology Internet and network computing

Globalization Forces, cont’d. Market forces (កត្តាជំរុញផ្នែកទីផ្សារ) Globalizing companies become global customers Cost forces (កត្តាជំរុញផ្នែកថ្លៃដើម) Goal for economies of scale to reduce unit costs Competitive forces (កត្តាជំរុញផ្នែកប្រកួតប្រជែង) Increase in intensity due to explosive growth in international business

Explosive Growth (សន្ទុះនៃកំណើន) Foreign Direct Investment and Exporting ​​​ (ការវិនិយោគផ្ទាល់និងការនាំចេញ) FDI - Direct investment in equipment, structures, and organizations in a foreign country level sufficient to obtain significant management control (Table 1.2) Exporting – transportation of any domestic good/service to a destination outside a country or region

Table 1.2 FDI Indicators and Multinational Company Statistics (billions of dollars and percentages)

Explosive Growth Number of International Companies UNCTAD - United Nations agency in charge of all matters relating to FDI and international corporations. 1995 – 45,000 parent companies with 280,000 foreign affiliates ($7 trillion in sales) 2004 – 70,000 parent companies with 690,000 foreign affiliates ($19 trillion in sales)

Table 1.3 Ranking of International Companies and nations according to GNI (Atlas Method) or Total Sales Note: Belgium (B), China (PRC), France (F), Germany (G), Italy (It), Netherlands (N), Switzerland (S), United Kingdom (U.K.), and United States (U.S.). Source: World Development Indicators database, http://devdata.worldbank.org/data-query/ (July 4, 2006); and Fortune 2005 Global 500, http://money.cnn.com/magazines/fortune/global500/2005 (July 4, 2006).

Globalization Debate And You World Trade Organization (1999, Seattle) Extensive public protests about globalization and the liberalization of international trade Debate – Waged by diametrically opposed groups with extremely different views on consequences of globalization Dramatic reductions in worldwide poverty are contrasted with anecdotal stories of people losing their livelihoods under the growing power of multinationals

Environments of IB Environment ​(បរិយាកាស) Forces (កត្តាជំរុញ) All the forces influencing the life and development of the firm Forces (កត្តាជំរុញ) External Forces (កត្តាជំរុញខាងក្រៅ) (Uncontrollable: មិនអាចត្រួតពិនិត្យបាន) – Forces over which management has no direct control Internal Forces (កត្តាជំរុញខាងក្នុង) (Controllable: អាចត្រួតពិនិត្យបាន) – Forces that management can use to adapt to external forces

External Forces Competitive (ការប្រកួតប្រកួត) Kind, number, location Distributive (ការចែកចាយ) For distributing goods and services Economic (កត្តាសេដ្ឋកិច្ច) GNP, unit labor cost, personal consumption expenditure Socioeconomic (សេដ្ឋកិច្ចសង្គម) Characteristics of human population Financial (កត្តាហិរញ្ញវត្ថុ) Interest rates, inflation rates, taxation

External Forces, cont’d. Legal (កត្តាច្បាប់) Laws governing how international firms must operate Physical (កត្តារូបវិទ្យា) Topography, climate, and natural resources Political​ (កត្តានយោបាយ) Forms of government, and international organizations Sociocultural (កត្តាវប្បធម៌សង្គម) Attitudes, beliefs, and opinions Labor (កត្តាពលកម្ម) Skills, attitudes of labor Technological (កត្តាបច្ចេកវិទ្យា) Equipment and skills that affect how resources are converted to products

Internal Environmental Forces Factors of Production (កត្តាផលិតកម្ម) Capital, raw materials, and people Activities of the organization (សកម្មភាពរបស់អង្គភាព) Personnel, finance, production, and marketing

Why Is International Business Different? Domestic Environment (បរិដ្ឋានក្នុងតំបន់) All the uncontrollable forces in the home country that surround and influence the firm’s life and development Foreign Environment (បរិដ្ឋានបរទេស) All the uncontrollable forces originating outside the home country that surround and influence the firm different values difficult to assess

Why Is International Business Different? cont’d. International Environment (បរិដ្ឋានអត្តជាតិ) Interaction between domestic and foreign environmental forces or between sets of foreign environmental forces Increased complexity for decision-making Decision making more complex (ការសំរេចចិត្តមានលក្ខណៈស្មុគ្រស្មាញ)